NISM Certifications · NISM-Series-VII: Securities Operations and Risk Management · Introduction to the Securities Market
A broker's client wants to buy shares and the broker is considering how the exchange guarantees completion of trades. Which entity steps in as the central counterparty to trades after they are executed on a recognised stock exchange, becoming the buyer to every seller and seller to every buyer?
The clearing corporation of the exchange acts as the central counterparty. Through novation it becomes the buyer to every seller and the seller to every buyer, guaranteeing settlement of trades. Depository participants, SEBI and RTAs do not perform this guarantee function.
- AThe depository participant of the client
- BThe clearing corporation of the exchangeCorrect
- CThe SEBI regulatory department
- DThe registrar and transfer agent of the issuer
Explanation
Through novation, the clearing corporation becomes the counterparty to each trade and guarantees settlement. A depository participant only holds securities in demat form, SEBI is the regulator, and the RTA maintains issuer records.
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